Average Wholesale Price (AWP)

Key facts

Published by

Commercial drug pricing compendia, not a government agency

Government role

Not defined, reported to or verified by any federal agency

Typical derivation

A markup on WAC, often 1.2 times WAC for brand drugs

Medicare Part B

Replaced as the payment basis by Average Sales Price in 2005

What is Average Wholesale Price?

AWP is a benchmark rather than a price anyone reliably pays. It began as an estimate of what wholesalers charged pharmacies, but for most drugs it is now derived from WAC by applying a markup, and it does not reflect rebates, discounts or actual invoice prices.

Because AWP sits well above actual acquisition cost for most products, the industry saying that AWP stands for Ain't What's Paid is widely repeated. Generics show the widest gaps, since a generic AWP can be many times what pharmacies actually pay.

How AWP is used in contracts

AWP survives because many contracts were written around it:

• Pharmacy benefit managers often reimburse pharmacies for brand drugs at AWP minus a negotiated percentage, plus a dispensing fee.
• Employer and health plan contracts with pharmacy benefit managers frequently state discount guarantees as AWP minus a percentage, set separately for brand, generic, retail, mail and specialty.
• Generic reimbursement is more often governed by Maximum Allowable Cost (MAC) lists, with AWP-based discounts used as an aggregate guarantee.
• Many state Medicaid programs once paid AWP minus a percentage before moving to acquisition cost benchmarks such as NADAC.

Why AWP matters

Analysts need AWP to interpret contract terms and discount guarantees, but it is a poor measure of real drug cost. A larger AWP discount does not always mean a lower price if the underlying AWP or the drug mix differs.

AWP was also central to litigation in the 2000s alleging that inflated published prices raised government and private reimbursement. Congress moved Medicare Part B drug payment from a percentage of AWP to Average Sales Price (ASP) under the Medicare Modernization Act of 2003, and Medicaid later shifted toward actual acquisition cost.

AWP vs WAC and NADAC

Wholesale Acquisition Cost (WAC) is the manufacturer list price to wholesalers, AWP is a compendium benchmark usually set above WAC, and NADAC is a survey-based estimate of what retail pharmacies pay. For a typical brand drug, NADAC is close to or slightly below WAC and well below AWP. For a generic drug, both WAC and AWP can sit far above NADAC.